Shawnee Tubing in rent dispute with local investor group

Thursday

Shawnee Tubing Industries, LLC, (STI) is again finding itself on shaky ground as its newest owner American Industrial Acquisition Corporation (AIAC) and landlord, local investor group Shawnee Tubing Real Estate (STRE), dispute over a lease agreement; STRE reports rent hasn't been paid for five months.

Shawnee Tubing Industries, LLC, (STI) is again finding itself on shaky ground as its newest owner American Industrial Acquisition Corporation (AIAC) and landlord, local investor group Shawnee Tubing Real Estate (STRE), dispute over a lease agreement; STRE reports rent hasn't been paid for five months.

In a press release Chairman Leonard Levie of AIAC claims STRE is evicting STI from its site at 41600 Wolverine Road — threatening the jobs of 175 employees.

The company and property owner can't seem to find common ground regarding what rent payment would be reasonable.

“It is customary in these situations for all stakeholders to support saving the business with temporary relief on rent until the business has a chance to recover,” Levie said. “AIAC recently purchased and saved a similar factory in Canton, Ohio, where the city, state and county rolled out the red carpet for us with all sorts of tax breaks, grants and economic incentives. In contrast, all we have received from the 18 Fathers of Shawnee and five local banks is an eviction notice and a court date.”

In the press release Levie said AIAC has invested millions in the plant so far, but exactly how much is unclear.

At one point Levie said, “AIAC, which owns 77 factories in 24 countries, including the Avara Pharmaceutical plant in Norman, OK, has already invested $4.5 million to rebuild this local Shawnee business.”

Two paragraphs later , however, Levie said, “While the insider landlord group worked on schemes that created no jobs and no value, other than lining their pockets, AIAC stepped up to the plate and invested over $5 million to restart this business which has been employing people in Shawnee for 44 years.”

Local economic development director and STRE Manager Tim Burg said STRE was disappointed to read Levie's press release.

Burg said no eviction notice has been served, but proceedings are underway to push that along as the two entities are clearly at a stalemate.

A court date has been set for Aug. 23 to allow STRE to request an eviction notice.

“Our eviction proceeding was filed only after several weeks of attempting to negotiate with Mr. Levie, during which time, Mr. Levie’s company, which is part of a $5 billion conglomerate, has refused to pay any rent on the $5 million building where it operates,” Burg said.

He said the proceeding was filed with the hope that Levie would join STRE at the negotiating table.

“That he would rather shut down business operations than pay rent on the building where it operates is disheartening to say the least,” Burg said. “That he would seek to cast the blame on our group for his threatened shutdown is disingenuous — particularly since it was he who shut down the old Shawnee Tubing Solutions by foreclosing on its assets.”

STRE consists of local investors, who stepped up last year to help keep STS in business by buying the building.

“As always our first concerns are for those who are employed at this facility who are now facing a great deal of uncertainty,” Burg said. “Our role from the very beginning of this process has always been one of trying to save the jobs at this facility.”

Burg said negotiations with Levie are ongoing and Levie’s press release is regarded as a mere negotiating tactic.

“We hope the operations of Shawnee Tubing continue for years to come and we wish Mr. Levie nothing but the greatest success in the future with its operations,” Burg said. “But we think it is entirely unfair for him to seek to reap profits without paying reasonable rent on property that he is using for those operations.”

STRE said Levie's initial conditions were unreasonable and unobtainable anyway.

“There are no incentives for retaining jobs in the State of Oklahoma and it also is not possible to offer any property tax exemptions,” Burg said. “What AIAC asked for was unrealistic and something we have no control over.”

Burg said when STRE made its investment it was to save jobs.

“When we started this there were 250/300 jobs at the facility, and now it is down to 170,” he said.

Looking forward

Shawnee BancFirst President Casey Bell said BancFirst is part of a lending group of community banks that includes Vision Bank, First United Bank, Arvest Bank and First National Bank, as well as the Oklahoma Industrial Finance Authority.

“As community bankers we worked together on this transaction for jobs and economic development for Shawnee and Pottawatomie County,” he said.

Though they are forbidden by privacy laws to discuss customers’ banking matters, they are well aware of the discussions between AIAC and the owner of the Shawnee Tubing Solutions facility (STRE).

“We look forward to a resolution from their talks,” he said.

Background

In May 2017 Wolverine Tube Shawnee — as well as the majority of its operations — was acquired by a newly formed company called Shawnee Tubing Solutions LLC (STS).

Mayor Richard Finley said then-President and CEO Greg Gallman, who was Wolverine's general manager, worked very diligently more than a year to acquire the company.

Led by Gallman, STS was to continue to manufacture industrial copper tube from the facility.

At the change in ownership, more than 500 were employed at the plant. It was announced at that time that over the next several months the plant would experience a significant reduction of its labor force as it reintroduced water tube manufacturing and phased out the technical side.

Last year, then-STS Human Resources Director David Yockel said the acquisition was largely predicated on the depth and experience of Gallman and his management team, coupled with the passion of local business leaders and investors who worked to keep the site open and in Shawnee.

Finley said through a consortium between all five banks participating, and a significant amount of capital being raised on the local basis, Gallman was able to acquire that company.

Burg said the local investors (STRE) raised just less than $2 million to allow six local banking institutions to provide a real estate loan, which allowed Gallman to borrow enough money from an asset-based lender in Chicago, using the investors funds and the bank loan as equity for the larger loan.

“That asset-based loan allowed the previous owner (Gallman) of Shawnee Tubing Solutions to purchase the facility from the Canadian owner,” Burg said.

He said the real estate was the collateral for the loan from the Oklahoma banks.

“It was also the collateral for the investors,” he said.

The investors were to receive monthly lease payments, which were to be used to pay the loan to the Oklahoma banks, plus the insurance, taxes and the cost of the real estate broker.

Unfortunately Gallman was unable to keep STS afloat and AIAC foreclosed on the plant.

“The local investors (STRE) have not received any lease payments for over five months now, nor any profits as Mr. Levie has alluded to,” Burg said.

The investors have been paying those loan payments for five months now and have not received any payments from those who are using the facility to produce their products, Burg said.

“None of the investors have received any return on their investment,” Burg said, “in fact, it has cost them additional funds to try to get the tenant to pay the lease by forcing the hiring of legal representation.”

The only offer AIAC made to the investors was their initial offer, Burg said, which was not sufficient to cover the costs of repaying the loan, the insurance, taxes, real estate fees or any of the other associated costs.

The amount of the lease was $48,333 per month and we offered to lower that substantially to accommodate the new owners, but they have failed to respond to that lower amount or even counter with some other amount.

“Our lease rate was based upon a triple-net lease that covered taxes, insurance and the fee of a real estate broker,” Burg said. “It is not an unfair rate based upon a 350,000 square-foot facility that sits on 50 acres, three miles from Interstate 40, with a rail siding.”

“Our focus has been and still is how we can save the jobs of our local residents, neighbors and friends,” Burg said.

He said though the local investors do not want to see the plant shuttered, he is optimistic that — should the site close — affected employees can be connected with other jobs or retraining efforts.

According to aiac.com, the company was established in 1996, and its portfolio consists of 75 manufacturing and distribution sites with over 8,500 employees in 24 countries in North America, Europe and Asia.

Owning more than 6.5 million square feet of industrial real estate, the site states that AIAC's total annual revenues exceed $1.6 billion.

Watch for updates.

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